There are plenty of reasons why Latin American investors, both families, and companies, seek to invest in the US. The US offers the largest consumer market and the highest household spending in the world, accounting for more than one-quarter of global household consumption.
Investing in the US can create opportunities in a stable market. Of course, every savvy investor will look for opportunities to diversify.
For Latin American investors, the US is typically one of the first choices outside their country. On the surface, investing in the US seems less complex than in other countries. The time zones are basically the same and there isn’t as much of a language barrier as you’ll find in different parts of the world. However, just like any other market, investors need to look below the surface first to avoid unnecessary – and costly – surprises.
Let’s discuss the most popular investment opportunities in the US and the factors Latin American families and companies should consider before moving forward.
Perhaps the most straightforward way to invest in the US is moving liquid funds into US-based investment instruments… Different instruments may have diverse implications. Investors need to understand their contractual and tax obligations in the US and in their country of residence prior to choosing one opportunity over another.
Real Estate Investments
Investing in US real estate can be lucrative for Latin American families and companies, but there are very specific rules that require in-depth analysis to ensure compliance and efficiency. For example, the Foreign Investment in Real Property Tax Act (FIRPTA) was created by the US federal government to ensure foreign individuals or entities that sell US property are properly taxed.
Essentially, the sale of a defined interest in US real property (USRPI) is taxable. If you sell shares of a company that owns real estate in the US, you could be taxed by the US. Understanding these and many other tax implications is critical for real estate investors.
Latin American companies often choose to expand by conducting trade or business in the US market. Who wouldn’t want to conduct business in the biggest market in the world? In reality, as anywhere else, Latin American companies can’t just set up a shop and expect everything to go smoothly.
Latin American companies sometimes fail to fully grasp the sheer size of the US market and territory. A company might dream of opening offices in Miami, Los Angeles, New York, and Chicago without accounting for costs for supply chain, logistics, labor, etc.
A national operation in the US is very different from a national operation in other countries, and a regional or state focus could be more than enough as a starting point. For example, the economy of Florida alone is larger than the economies of most Latin American countries.
One solution for investors from Latin America is to acquire or partner with US-based companies to assist in establishing US operations. These companies may offer marketing expertise, distribution, industry experience, and/or existing permits and licensing that can be leveraged to maximize efficiency, shorten time to market, and increase sales.
Investing in the US, whether as an individual or business, can be complex. For companies looking to establish a US footprint, you have to understand and manage regulations, labor, insurance, legal setup costs, and taxation at the federal, state, and local level. Unlike some other parts of the world, these rules are tightly enforced and penalties for noncompliance can be severe.
Prager Metis can help families and businesses navigate the complexities of investing in the US so you can make the right decisions and maximize the return on your investment.